Both the Bank of England and the Swiss National Bank will be considering intervention today

Welcome to Maundy Thursday which is the forerunner of Easter so let me wish all readers a Happy Easter too. In the UK today has a celebration in which the monarch presents Maundy money to deserving recipients which these days usually means pensioners. As the number of recipients depends on the monarchs age then there will be more than a few today grateful for the long reign of Queen Elizabeth II. And fans of both fiat money and currency based on precious metals can enjoy this as the coin set presented is minted in sterling silver. Rather oddly when the currency was debased in 1947 (the silver content was removed) Maundy money was rebased and returned to its previous sterling silver status.

Speaking of Currency debasement

The Bank of England has a policy meeting today. It will discuss an extension of its Quantitative Easing programme which has so far spent some £307.77 billion of its target of £325 billion it does face a potential problem. At the current rate of purchases of £4.5 billion a week it will run out of ammunition before its next meeting. It gains a benefit in this sense from the two bank holidays of Easter Monday and the Mayday bank holiday as it makes it purchases on Monday,Tuesday and Wednesday but the next meeting is slightly later in the month (9&10th of May) so it will just run out at the current rate of purchases.

There are possible ruses such as not buying in Easter week for example which could possibly provide some breathing space. But I suspect that the two members who voted for an increase in the target to £350 billion last month (Adam Posen and David Miles) will be pressing their case hard. So whilst the consensus today is for an unchanged announcement there is a possibility of a move on the target for quantitative easing to £350 billion. The positive purchasing managers reports we have received this week will be against it but it has a chance I think.

Today’s industrial production figures may stimulate the debate

A little nudge may have been given by this mornings releases on industrial and manufacturing production.

The seasonally adjusted Index of Production fell by 2.3 per cent in February 2012 compared with February 2011

The seasonally adjusted Index of Manufacturing fell by 1.4 per cent in February 2012 compared with February 2011

The month on month picture for industrial production rose by 0.4% but the manufacturing number was minus 1%. Indeed if we look at the overall breakdown we see this.

Mining & quarrying, gas and electric & water supply and sewerage increased by 3.8 per cent, 6.1 per cent and 1.3 per cent respectively. These rises were partially offset by a fall in
manufacturing of 1.0 per cent.

So whilst I do not wish to decry the industries which rose they are not ones which seem likely to drive the UK economy forwards and the one that might,manufacturing fell! And if we look further into the report the February rise was on the back of a downwards revision to the January data so the net gain was only half of what it looks.

This month, the period open for revision is January 2012 only. Month on month, the Index of Production has been revised down by 0.2 per cent from -0.4 per cent to -0.6 per cent.

Even worse look at what drove it down.

this has been more than offset by a downward revision to manufacturing of 0.4 per cent.

For those who are fans of the underlying numbers then UK industrial production is at 90.4 and manufacturing production is at 94.4 where 2008=100.

Where does this leave us? Probably with a no change announcement as the level of growth in services looked quite strong in the purchasing managers index for March but there is some doubt I think. And if not this month then next.

Central Bank action and equity markets

This week has seen equity markets follow the strategy of the Grand Old Duke of York where they marched up the hill on Monday (UK Ftse 100 up 106 points) and down it on Wednesday (UK Ftse 100 down 134 points). As I type this the Ftse has a small rally so is virtually back to where it began. The change in sentiment appears to have been mostly driven by the publication of the recent FOMC (US central bank) minutes and in particular this bit.

 A couple of members indicated that the initiation of additional stimulus could become necessary if the economy lost momentum

Markets were hoping to see more than a couple of members out of ten being in favour. Indeed previous minutes had hinted at a larger number. So it seemed that in the short term less chance of monetary stimulus led to a stock market fall. Which begs the question what about the medium or long-term? Take a look at this chart from John Kicklighter.

I will leave readers to their own thoughts on this and will be interested to read them in the comments section.

 The price of oil

This has slipped out of the news columns but is being sustained in the face of a lot of pressure both factual and hyperbole based. The factual part of the equation was an increase of 9 million barrels in the crude oil stockpile of the United States although I may not be the only person troubled by this reference to it on Bloomberg news.

The surge in U.S. oil production reflects a change in the way the department estimates output

In addition we have seen the threat of releases of strategic petroleum reserves that began with the US and UK and ended with the French joining in. However there has been no release only media talk and even if there is one we can look back to the last one which had an impact of about a week! Saudi Arabia has joined in too with promises of an output increase but as they continue to repeat this mantra then I keep thinking of this song by Nils Lofgren.

Back it up baby

Or if we lift out thoughts to a higher plain the words of Hamlet.

The lady doth protest too much, methinks

But however you spin it the price of a barrel of Brent crude oil has made its way above 123 US dollars again. This has its impact as if we look at the official figures from the UK Department of Energy we see this.

On  Monday 2nd April 2012, the price of ULSP (unleaded petrol) was 141.0p/litre, this is 1.5p higher than the previous week.  The price for ULSD (diesel) was 147.7p/litre, this is 1.1 higher than the previous week.  

The price of ULSP is 8.2p higher, with the price of ULSD 8.2p higher than in the equivalent week in 2011. The  price of ULSP and diesel are both at a record high.

Not all of this is due to the oil price rising as there are other influences including the UK mass panic over a possible tanker driver strike and possible fuel shortage. But we remain with an inflationary and recessionary influence in 2012 just when so many were expecting and indeed forecasting the reverse.

The Swiss Franc has neared 1.20 versus the Euro

Regular readers will be aware of my frequent updates on the value of the Swiss Franc and the impact its rise has had on those who borrowed using it in Eastern Europe. We are approaching the ceiling that the Swiss National Bank put on it of 1.20 as I type this and reports are that it is offering to intervene in “industrial size” (h/t Pawelmorski).

As I am now also being told that 1.20 level has been briefly broken I suspect the Swiss National Bank may be considering the wisdom of promising to intervene in “unlimited amounts”. So we return once more to two themes. Central bank intervention and the (un)wisdom of bombast and hyperbole.

Also it looks perhaps that money is fleeing the Euro…..To which the obvious question is why today and are the upcoming bank holidays significant?

This entry was posted in Euro zone Crisis, General Economics, Quantitative Easing and Extraordinary Monetary Measures, Stagflation, UK Inflation Prospects and Issues. Bookmark the permalink.
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  • http://eulands.com/wp/eurozone-debt-crisis-markets-slide-again-as-tensions-remain-high-in-greece/9217 Eurozone debt crisis: Markets slide again as tensions remain high in Greece | European Lands

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  • JW

    Hi Shaun
    Easter Bank Holidays would be a good time to announce somebody leaving the EZ, don’t think they will, because Germany is still a net beneficiary of the mess, but someone might think they will, if you know what I mean.
    US stock market rises and falls with the actual and perception of more QE. And the incredulous rise of Apple of course, how do you describe the mess in a microwave when an fruit is overheated and explodes?
     

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  • MickC

    A country leaving the EZ was my first thought. Not very likely at all-but let’s hope its Germany!

  • JW

    Hi Shaun
    This might appear off-topic, but its not really. I attach 2 links on the same thing, the latest weekly initial jobless claims in the US.
    First link from the DT, using Bloomberg feeds etc; its great they fall to lowest level in 4 years!
    http://www.telegraph.co.uk/finance/jobs/9188430/US-jobless-claims-fall-to-four-year-low.html
    Now the other side of exactly the same story and statistics. ZH reporting how every week without fail the intially reported numbers are revised upwards, so wait a week or two and the wonderful improvement disappears into the dust, but hey who bothers with the numbers, the media have their headlines…
    http://www.zerohedge.com/news/initial-claims-continue-string-disappointments
    Spanish/Italian yields continue their rise, but its OK the EZ have all those fully funded firewalls in place, haven’t they.

  • http://eulands.com/wp/eurozone-debt-crisis-euro-falls-as-tensions-remain-high-in-greece/9341 Eurozone debt crisis: Euro falls as tensions remain high in Greece | European Lands

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  • http://masterbisnis.com/eurozone-debt-crisis-euro-falls-as-tensions-remain-high-in-greece/   Eurozone debt crisis: Euro falls as tensions remain high in Greece | Masterbisnis.com

    [...] Shaun Richards commented: I suspect the Swiss National Bank may be considering the wisdom of promising to intervene in [...]

  • Anonymous

    I don’t know I can probably do a better job of explaining what happens when some of your vegetable soup explodes……. It creates quite a mess!

    Pre-jobs numbers we have 1.2014 for the Swiss Franc versus the Euro and I suspect today that the Swiss National Bank will be more on the ball….

    But we remain with concerns as in the background the “currency twin” the Japanese Yen pushed up to 107 Euros too.

  • Anonymous

    Hi JW

    I am relying 15 mins before the US unemployment report so that may yet take centre stage, but as we stand the last week and the last month perhaps has seen Spain’s situation drift backwards. With all the three year liquidity provided by the LTROs the European Central Bank must be wondering what providing a trillion Euros gets you these days….

    If we look at the ten-year benchmark the heady post-LTRO days of sub 5% have been replaced by 5.75%. Sooner or later Spain’s regional spending problems will get more daylight and the whole circus will begin again.

    The ECB may soon be firing up its bond purchases again, the ones it sadi had been stopped.

  • JW

     NFP is a disaster!
    But miraculously unemployment down to 8.2% as numbers out of ‘employable’ now nearly 83m. Zero unemployed soon because no-one wants a job!

  • Anonymous

    Weak headline employment number and mixed revisions do not tell the “expected” story. Or put another way CNBC quickly moved to the election/politics.

    The underlying message against it was more part-time work as U-6 improved on an underlying as well as seasonally adjusted basis. The SA number went from 14.9% to 14.5% which on first reading looks mostly to be part-time work…

  • JW

     The total ‘real’ jobs so far in 2012 look like about 15% of the number ‘seasonal adjustments’ have added. So when this unwinds in May I would expect unemployment rate to go through 9% again. How seasonal adjustment can be positive when the US has generally had ‘summer temperatures’ in Feb/March of course is brainless. My bet QE3 in May.